Pros and Cons of refinancing

[LivingAlmostLarge]

Just looking at rate, if I refi down to a 7/6 month arm, it would be fixed for 7 years and adjusting every 6 months after capped at 5% over start. Which the starting rate is 2.25%. So capped at 7.25%. What would be the pro and cons of refinancing my current 30 year 2.875% mortgage down? Or not doing it?

[disneysteve]

The big con in this scenario is you taking out an adjustable rate loan at a time when rates are rising. I'd bet anything that 7 years from now, rates will be considerably more than they are today. On the plus side, you'll have locked in 7 years at 2.25% which is awesome. The big question is what happens then?

I wonder if you'll actually save much in the long run by lowering the rate 0.6% for a few years.

[srblanco7]

Just looking at rate, if I refi down to a 7/6 month arm, it would be fixed for 7 years and adjusting every 6 months after capped at 5% over start. Which the starting rate is 2.25%. So capped at 7.25%. What would be the pro and cons of refinancing my current 30 year 2.875% mortgage down? Or not doing it?

Were I in your shoes, I would not give up your current fixed rate (which is terrific @ 2.875%) to gain the 0.6% rate reduction for the 7 years. The predictability of a fixed rate and the likelihood that interest rates will be higher in the future would weigh heavily on my thinking as to whether to refinance.

[LivingAlmostLarge]

Were I in your shoes, I would not give up your current fixed rate (which is terrific @ 2.875%) to gain the 0.6% rate reduction for the 7 years. The predictability of a fixed rate and the likelihood that interest rates will be higher in the future would weigh heavily on my thinking as to whether to refinance.

I will save at least $60k in years so then refinancing again in 7 years might make a big difference on a smaller principal amount. 0.6% on a large number is a large number.

[Like2Plan]

technical question: are you refinancing your current loan amount or your original loan amount?

Have you run comparisons on how much this loan would save you for the entire term of the loan?

For example, you have X (number of years remaining on your 30 year loan) at 2.875% on X amount (current loan amount) = ?
And, 30 years at 2.25% on X amount (your current loan amount) = ?

(In this scenario, I am picking the lowest possible interest rate for the adjustable loan--not considering the possibility of rate adjustments)